Home sales up sharply in 2013 in Detroit, other cities across U.S.

By Bloomberg

Home prices in Detroit rose 17.29 percent from a year ago as prices in 20 U.S. cities rose 13.6 percent, the most in more than seven years, signaling the real-estate rebound will keep bolstering household wealth in 2014.

The S&P/Case-Shiller index of property prices in 20 cities climbed 13.6 percent from October 2012, the biggest 12-month gain since February 2006, after a 13.3 percent increase in the year ended in September, a report from the group showed in New York. The median projection of 22 economists surveyed by Bloomberg called for a 13.5 percent advance.

A dwindling inventory of foreclosed properties has helped restrict the supply of homes for sale, pushing up prices even as higher mortgage rate cool demand. The real-estate market will probably get its next boost from gains in employment that are lifting consumer confidence in the economic expansion.

"There's certainly room for home prices to continue rising in the coming year," said Dana Saporta, an economist at Credit Suisse in New York, who projected a 13.7 percent year-over-year advance in prices. "As home prices continue to rise, more and more homeowners who are underwater on their mortgages will see their financial situations improving. Just getting out of that underwater position should be a big help to the economy."

Estimates in the Bloomberg survey ranged from year-over- year gains of 11 percent to 14 percent. The S&P/Case-Shiller index is based on a three-month average, which means the October figure was influenced by transactions in September and August.

Home prices adjusted for seasonal variations rose 1 percent in October from the prior month, the same as in September. That matched the Bloomberg survey median.

The month-over-month price gains were led by Miami, which showed a 1.9 percent increase, followed by Atlanta and Detroit at 1.8 percent. Property values rose in all 20 metropolitan areas, with the smallest gain coming in at 0.3 percent in Denver.

Advances in home equity may be harder to come by as Federal Reserve policy makers begin to trim stimulus, causing mortgage rates to climb. Fed officials said on Dec. 18 they will trim monthly bond purchases intended to spur the expansion to $75 billion from $85 billion starting in January.

"The key economic question facing housing is the Fed's future course to scale back quantitative easing and how this will affect mortgage rates," David Blitzer, chairman of the S&P index committee, said in a statement. "Other housing data paint a mixed picture suggesting that we may be close to the peak gains in prices."

Unadjusted prices climbed 0.2 percent in October from the previous month after a 0.7 percent gain in September.

The year-over-year gauge, which uses records dating back to 2001, provides a better indication of price trends, according to Karl Case and Robert Shiller, creators of the index.

All 20 cities in the index showed a year-over-year gain, led by a 27.1 percent advance in Las Vegas. Values climbed 10.9 percent in Chicago, its biggest advance since 1988. Charlotte and Dallas showed their largest increases in record-keeping going back to 1987 and 2000, respectively.

Property values are climbing even as rising mortgage rates cool demand. Sales of previously owned homes declined for the third consecutive month in November, reaching the lowest level of the year, figures from the National Association of Realtors showed earlier this month.

The average rate for a 30-year fixed mortgage was 4.48 percent in the week ended Dec. 26, compared with 4.1 percent at the end of October, according to McLean, Virginia-based Freddie Mac. It was at 3.35 percent a year earlier.

A report from the real-estate agents' group yesterday signaled the slowdown may have run its course. Contracts to purchase previously owned homes rose last month for the first time since May. Economists consider pending home sales a leading indicator because they track contract signings. Existing-home sales are tabulated when a deal closes, usually a month or two later.

Other parts of the market are rebounding. Purchases of new homes exceeded projections in November, holding near a five-year high. Sales declined 2.1 percent to a 464,000 annualized pace, following a revised 474,000 rate in October that was the strongest since July 2008, Commerce Department data showed last week.

Builders began work on more houses in November than at any time in the past five years to try to keep up with demand, other Commerce Department figures showed.

Homebuilders such as Los Angeles-based KB Home see the rise in interest rates as a short-term "pause" for buyer demand that won't crimp a pickup in the housing recovery next year.

"Higher mortgage rates, higher home prices and lower consumer confidence due to uncertainty in Washington triggered a pause among homebuyers who are now being more cautious," Chief Executive Officer Jeffrey Mezger said on a Dec. 19 earnings call. "Affordability is at attractive levels, demographics remain strong and there's pent-up demand due to delayed household formation" that will support the market in 2014.

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